It is no secret that eCommerce is the way to go for a new business venture. It just takes a few clicks and minimal investment to set up a shop, and you can instantly reach buyers in all geographies and time zones with relative ease.
The UK, in fact, has the most advanced eCommerce system in Europe, so it is a great time to join the bandwagon. Along with the fun of creating and marketing your products, however, you still need to take care of the nuts and bolts – and that includes your books of accounts.
Now, unless you have accounting expertise, that might not sound enjoyable. Luckily, with modern online accounting tools and specialist eCommerce accountants at your service, it does not have to be hard.
Read on to find out more about managing accounts for an online business with minimal effort and maximum payoff:
Choose the right accounting software
To have flawless books of accounts, it is advisable to use software tailored to the unique needs of an eCommerce venture. There are several popular ones that integrate with online marketplaces like Amazon and eBay and make it easy for you to track and categorise orders and fulfillments.
Other functions like easy syncing with bank accounts, payroll processing, time tracking and financial reporting are also essential to have. Most software providers will offer you a free trial, so you can look around and make an informed decision. Alternatively, you may find the package supplied by your accountant or even your business banking partner, includes cloud software that is suitable for your needs.
Know what your profits and costs look like
Whether you are a seasoned business owner or have recently started your operations, there are some concepts you have to have a firm grasp on. These include:
1. Fixed expenses
These are the basic expenses that you need to pay every month to keep your business going, no matter how much or how little you produce. They are also known as indirect costs and include things like rent, utility bills, salaries and interest on loans taken.
When planning your finances, take an average figure for your fixed expenses if there is any variation in them from month to month.
2. Cost of goods sold (COGS)
This refers to your direct costs of production. They include every component that makes up the cost of the actual manufacture as well as related costs like packaging, shipping to your warehouse and then delivering them to the customer. You will need to set your selling price to be higher than COGS by a reasonable margin because you need to cover your Fixed expenses too.
Your breakeven point is where your sales revenue exactly covers your fixed costs and COGS. Reaching breakeven is a significant milestone for any business, so calculating it in advance is essential for planning your finances and production.
You could choose to hit a fixed number of sales each month, for instance, until you reach breakeven. As you progress, you could re-examine your costs and find ways to reduce them so that you get there faster and make better profit margins.
Past the breakeven point, any additional sales revenue is profit. Higher profits are a motivator for anyone, so be sure to keep tracking your sales and watching out for signs that you are close to profits.
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Manage your cash flow
Cash flow refers to the inward and outward movement of money from your business. Without an eye on your money, you risk huge losses and inefficiencies, so drawing up periodic cash flow statements is a must. You may have heard the saying ‘Cash is King’ and that is as true today as it has always been.
As you can imagine, being stuck without enough cash on hand can be tricky if unexpected expenses crop up, so be smart about tracking expenses and avoid paying vendors too early.
This latter might seem like a minor point, but paying too early could leave you without enough for your salaries and other expenses, so stick to the agreed-upon schedule.
Manage your inventory smartly
When you are just starting out, you will likely be strapped for cash. Whatever inventory you produce, therefore, needs to be used wisely. Keep auditing your inventory and making physical checks to ensure that items are not lost, damaged, expired or stolen.
Invest in secure storage facilities and choose accounting software that comes with an inventory management option. One problem you might face is shrinkage, where your inventory list says you have a certain number of pieces left, but the actual number is fewer because of double orders.
With the right software, you get complete transparency into all orders and inventory movements so that the same item can be ordered only once before being taken off the list.
This is not just good for inventory management – it also avoids displeasing the customer when you are unable to fulfil their order. And for your eCommerce business to thrive, you must keep tabs on your inventory in real-time.
Manage your taxes
Whether you are online only or hybrid, a fast-growing firm, or just starting out, paying your taxes on time is mandatory. As you can imagine, there are several rules around tax compliance, and keeping track of them all in addition to running your core business can be trickier than you think.
For this reason, we recommend consulting a tax specialist even if you manage your own books of accounts. They will prepare everything according to the tax laws, submit your returns on time and give you valuable suggestions on how to get tax benefits as a business owner.
The good news is you can totally count on Bradleys Accountants when it comes to managing your UK online retail accounting processes. We can help you with various services such as bookkeeping, payroll, corporation tax returns, and cash flow forecasting.
Over to you
In conclusion, managing your accounts for an online retail business needs commitment from you, but it is absolutely doable. Shop around for the software that best suits your needs and set aside some time each day to look over the basics.
And when you feel like you are ready, consider hiring an eCommerce accountant who can give you expert advice and take the job off your hands entirely, letting you do what you do best – create. If you would like to know more about how we can help you, please arrange for a no-obligation, free consultation with us by filling out the form.